For years now, supply chain blogs and articles have invariably begun with a statement about the changing world. There is certainly plenty going on right now, and even the causes themselves are changing. Whereas we used to be able to blame the increasing uncertainty and volatility on changing consumer behaviour, more recently the culprits have been COVID-19, the Suez Canal, Russia and who knows what else lies ahead. Supply chain disruption and gaps in supply and demand have significant – and above all lasting – consequences, especially for lengthy international supply chains. The longer the chain is, the more severe the bullwhip effect will be, which is why the knock-on effects of the Ever Given situation have been dragging on for months, despite the obstruction itself lasting less than a week.
Technology solves everything
Automation is typically presented as the remedy for all this uncertainty. Artificial intelligence (AI) and machine learning (ML) in particular are powerful technologies that are already built into many standard supply chain planning platforms, with a growing range of useful and practical applications. The early adopters are already benefiting from numerous advantages thanks to digital planning.
…or does it?
As a result, digital planning will play an even bigger role than it already does, and in five years from now the world of supply chain software will look very different. However, technology alone is rarely a completely satisfactory answer to new challenges, and the current times are no exception. For example, many machine learning applications are focused on driver-based forecasting to improve the accuracy of demand forecasts. This holds great potential, but the major disruptions in recent years have actually been on the supply side: problems with deliveries, shortages of materials and components and the associated (and sometimes very steep) price increases. Machine learning can’t solve all that for us.
Supply chain resilience
Therefore, we need to do something else besides making intelligent use of new technology, and this is where supply chain resilience comes in. Supply chain resilience is focused on the design and management of the end-to-end value chain, the identification of vulnerabilities and the implementation of permanent measures to address them, such as smart buffers, back-up facilities and continuous monitoring processes that intervene whenever necessary. In fact, we are even prepared to accept additional costs nowadays to improve supply chain resilience.
Achieving and sustaining supply chain resilience requires a structured process which regularly brings together the right disciplines. Sales & Operations Planning (S&OP) provides a perfect framework for this, because it is an existing process in which all the disciplines agree on a consensus plan on at least a monthly basis, if not more frequently.
To learn more about safeguarding resilience in your supply chain, read our blogs about ‘Resilience as a lifestyle’.
Bigger role for Purchasing in S&OP
Did I say all the disciplines? Actually, the S&OP process generally omits one discipline that’s crucial for decisions about the end-to-end supply chain: Purchasing. Whereas most S&OP processes have traditionally been based on the (often implicit) assumption that materials and components are always available, the recent major disruptions have highlighted that things have changed – and sometimes with huge consequences, as we’re currently seeing in the automotive industry.
Technology will undoubtedly play an ever-greater role, including to address the upstream problems. For instance, digital twins can provide ideal support to decision-making by enabling scenarios to be analysed quickly. But first and foremost, the right foundation needs to be in place – and that means embedding supply chain resilience in the S&OP process, including a permanent seat at the table for Purchasing.
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This article was written for Supply Chain Magazine.
